NOG Wrap Thoughts
Record quarter for Production, Revenue, EBITDA. But all three were short of the Street. Why?
Production came in at the low end of the company’s guidance range due to timing of higher working interest wells that fell later in the quarter and into October. Production was still up 30% sequentially and was up 111% on a year over year basis but the net number of wells brought on line during the quarter was lower than I (or apparently the sell side crowd) would have expected. Since NOG is a non-operator, they don’t have control of the drilling or completion schedules … that’s the operator’s decision. The operators, having just come off two weather weakened quarters and wanting to make their 3Q rates shine, would naturally choose to take their swollen list of drilled but not yet completed wells and frac their higher working interest wells first. Note that KOG, WLL, CLR, and OAS saw larger than usual sequential bumps in production …
… they don’t do this by completing their lower interest wells first in the waiting on completion lists.
Analysts will typically split any range you give them so most will be looking at a minor short fall vs their models on production and it filters down from their to yield a minor miss on EBITDA ($0.51 vs $0.53 consensus) and EPS ($0.19 vs $0.22 consensus). In my view this is if anything little more than a timing hiccup. On the call, NOG did comment on coming higher LOE on a per unit basis, something they have mentioned on the last couple of calls attributed to the aging of wells in the play and we in fact seeing some inching up of LOE per BOE by the other Bakken Players. Estimates will come in slightly (should be no more than 10%) on this reiteration of LOE guidance.
Was all this worth a 16% drop in the stock yesterday? Probably not but it had had a good run up into earnings and a miss, even a slight miss after a strong run and coincidentally timed with a 3.7% down market day is likely to lead to such events. Did I hear anything that made me want to quit my core position here? No, I went into the quarter with some written calls on some of my trading position and covered those for pennies. I haven’t bought yet because honestly the situation in Italy has a lot more to do with the next level for the stock price than does the story itself. The market sees a loss and it is unlikely to sort out the particulars until sometime in the next week or two. I may add today or next week or may just sit for a bit. The name is cheapish on an acreage basis and the game plan is on schedule.